What to know when buying property at auction

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Buying property at auction can allow you to get the right property at a lower price and is also usually faster than buying a property on the open market, allowing you to avoid the delays associated with property chains, the current owners needing to move out etc.

However, the process for buying property at auction is quite different from that for a normal property purchase and there are a number of key issues you should be aware of before heading to the auction house.

Don’t buy blind

Perhaps the most important thing you can do to prepare for a property auction is to do your homework. Generally, the auction catalogue that lists all the properties for sale will be released around 2-4 weeks before the sale date. You should review this and identify any properties you are potentially interested in as soon as possible, so you have time to thoroughly check them out before the auction.

Once you have found a property or properties you are interested in, it is strongly recommended to view them yourself. This allows you to get a feel for the property and the area it is in, as well as helping to give you a sense of what work you might need to do to the property to ensure it meets your needs.

If you are thinking about buying a property you should approach a conveyancer before the auction to review the legal pack which will have been provided. The conveyancer can then report to you any obvious issues with the legal pack or advise which documents are missing from this pack that they would usually expect to see. It is important that this is done as far in advance of the auction as possible.

It is also a very good idea to have any property you are interested in bidding on independently surveyed and valued. This can help to identify any structural issues or other problems that may end up costing you money and give you a clear idea of how much it is realistically worth bidding for the property.

Have your finance in place

As stated above, one of the key advantages of buying property at auction is how fast things move. However, this also means that you need to have your finances worked out before the auction or risk not being able to complete the purchase on time.

You will generally need to pay a 10% deposit on the day or the sale if you win the bidding for a property and you will then typically have 20 working days to pay the balance to finalise the sale (in some cases this can be significantly less and you should always read the Special Conditions within an auction pack carefully to check this and other unusual terms). If you do not pay the balance in time, you are likely to lose your deposit and, at the very least, will usually have to pay interest to the seller on the outstanding balance.

If you need a mortgage to finance the purchase, you should speak to your lender well before the auction date and try to agree a mortgage in principal. It is worth bearing in mind that not all properties sold at auction will be considered mortgageable by all lenders. For example, if a property is not watertight and/or does not have a functioning kitchen and bathroom, many banks and building societies will not be willing to lend against the property. In these circumstances, you may need to consider alternative forms of funding, such as a bridging loan. Even where you have a mortgage in principle there is still a risk that the lender will not proceed with the mortgage if the valuation is not positive or if the legal documents reveal an issue.

Don’t get carried away on the day

One of the dangers of buying property at auction is the temptation to get carried away with the excitement of the auction process and end up bidding more than you can afford for a property. It is therefore a good idea to set yourself a hard limit on how much you are willing to bid for a property before the auction and make sure you stick to it.

The cost of buying property at auction

Alongside the normal conveyancing costs involved in buying any type of property, there are several additional costs to be aware of when buying at auction. These include:

Admin charges – Auction houses will typically charge the buyer an admin fee, usually due on exchange of contracts for the property. The fee will normally be a fixed amount rather than a percentage of the sale value and this information should be freely available from the auction house in advance.

Buyer’s premium – Some auction houses will also charge the buyer a percentage of the sale value as a separate ‘buyer’s premium’. This is typically set at around 1.5% of the final sale price.

Seller’s costs – Some sellers will specify that the auction fee and the cost of their conveyancing will need to be covered by the buyer, so it is important to check the details of the auction carefully to see if this is the case before bidding.

To find out more about our conveyancing services for buying property at auction, call us today on 01476 372 036 or use our contact page to find details of your nearest office.

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